Fleetowner 1545 Show Floor 2011 Sm
Fleetowner 1545 Show Floor 2011 Sm
Fleetowner 1545 Show Floor 2011 Sm
Fleetowner 1545 Show Floor 2011 Sm
Fleetowner 1545 Show Floor 2011 Sm

Eaton’s Meil: Economic growth and challenges ahead for trucking

April 4, 2011
LOUISVILLE. Economic tailwinds and headwinds are both gaining strength, according to Jim Meil, Eaton Corp.vp & chief economist, who detailed his take on the current state of the global economy and how he sees things shaking out for motor carriers over the long haul here last week at a media briefing during the Mid-America Trucking Show

LOUISVILLE. Economic tailwinds and headwinds are both gaining strength, according to Jim Meil, Eaton Corp.vp & chief economist, who detailed his take on the current state of the global economy and how he sees things shaking out for motor carriers over the long haul here last week at a media briefing during the Mid-America Trucking Show.

In the “tailwind category,” Meil cited improving job recovery numbers and higher auto sales in the U.S.; a strengthening manufacturing sector in Europe; China’s “reliably solid” growth, and how the new powerhouse that is Brazil appears to be “getting a second wind.” He also noted that the service sector is catching up to manufacturing in terms of setting the pace for this recovery.

Meil said the countervailing headwinds to economic growth have been brewed up by the combined impact of rising commodity prices and violent political dissent in numerous countries around the globe. Other drags he pointed to are actions taken by overseas central banks to tighten lending in response to emerging inflationary pressures and the sorry financial state of so many governments at all levels –federal, state and local, both here and elsewhere in the world.

The result of this all buffeting by positive and negative economic forces, according to Meil , is an unsettling blend of “happy” and “not-so-happy” effects that can leave individuals and businesses alike fluctuating between optimism and anxiety.

Among other conditions in his happy category, Meil pointed out household net worth is “halfway back” to where it was pre-recession; light-duty vehicle sales are rebounding, and the non-defense capital goods market has “come back all the way.”

Concerning housing starts, however, the only positive news he offered was that a pent-up demand is building that will, one day anyway, make itself felt. “Pent-up demand for the future is the only really good news about housing starts,” he said.

Looking at trucking in the near term, Meil stated that “freight recovery is clearly taking shape. Manufacturing is rebounding and inventories are rebuilding.” Truckload pricing is also firming, he said, and freight capacity, while “just right about three months ago,” is now inadequate to meet needs. Meanwhile, truck purchasing is still below replacement levels, even though the ability to finance such purchases is improving.

“We think capacity is at about 93%, so there is a shortage of trucks right now,” he explained. “We were about 40,000 units short as of January and that could get much higher by year’s end.”

Turning to the manufacturing side, Meil said it is now a supply-constrained industry. “We need to make about 55.6% more trucks in 2011 year-over-year.” But he predicted Class 8 NAFTA sales would reach about 240,000 units in 2011, up but not all the way back up to former levels. By 2012, that total could reach 300,000 units. “This is going to be a slower rebound,” Meil said.

He also said there would be “other challenges on the road ahead,” including “high and volatile” energy and equipment costs, continued governmental regulation of trucking, and higher costs to attract and retain drivers.

“Over the recession, the industry let go of 120,000 drivers,” Meil said. “Now the industry is going to have to pay these folks to reverse the trend.” One possible place to look for those workers is among the three million people laid off in construction and manufacturing, he noted.

Longer term, Meil forecast rising structural costs, and a rising threat from rail, intermodal and what he called “substitutes for trucking,” such as more warehousing of goods and suppliers retaining higher inventory levels.

Ending on a very up note, Meil pointed out that “2011 to 2013 should be great years for trucking” in spite of the challenges. “There are just better market signals,” Meil added. “If you walk around the hall here, you can practically feel it.”

About the Author

Wendy Leavitt

Wendy Leavitt joined Fleet Owner in 1998 after serving as editor-in-chief of Trucking Technology magazine for four years.

She began her career in the trucking industry at Kenworth Truck Company in Kirkland, WA where she spent 16 years—the first five years as safety and compliance manager in the engineering department and more than a decade as the company’s manager of advertising and public relations. She has also worked as a book editor, guided authors through the self-publishing process and operated her own marketing and public relations business.

Wendy has a Masters Degree in English and Art History from Western Washington University, where, as a graduate student, she also taught writing.  

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